April/May 2022 - Insurance News (Magazine)

UNDER WATER

How insurers are responding to one of the worst floods on record Man on a mission Jarrod Hill aims to bring CGU back to its best

Decision time Where the politicians stand on insurance issues April/May 2022

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Contents 6 Newsmakers

companyNEWS

10 Washed away

52 Sharpening up:

Insurers are stepping up as communities face a long rebuild following the catastrophic Queensland and NSW floods

16 Poll pressures

Politicians seeking election in the wake of devastating natural catastrophes may finally be heeding calls for resilience spending

18 Getting CGU back in the game

Jarrod Hill has a plan to get the insurer’s mojo back and realise its potential

22 Mixing it up

SMEs are increasingly buying some insurance direct and some through brokers, Vero’s latest Index report shows. Here’s why

27 The unstoppable third force

They bonded with brokers during the pandemic. Now underwriting agencies aim to grow the relationship

Aviso targets AR, broking markets

52 Innovative approach:

Lockton launches advisory business

52 Acquisitions alert:

PSC raises capital to fund further growth

peopleNEWS 54 UAC Sydney expo draws more than 300 brokers 56 Austbrokers/Sura take out Insurance Ashes 58 Steadfast Convention returns in style 60 maglog

32 Looking more ahead and less behind

Munich Re’s Scott Hawkins explains why the solutions to understanding and dealing with future climate risks won’t be found in the past

37 The tide is slowly turning

The major listed insurers brace for a flood of fresh challenges after a generally positive earnings reporting season

43 Care cover crisis

NSW and other states are scrambling to find solutions after the last insurer dropped ‘uninsurable’ abuse cover

UNDER WATER

Pictured: Brisbane after the flood catastrophe Credit: Ali Rasoul

How insurers are responding to one of the worst floods on record Man on a mission Jarrod Hill aims to bring CGU back to its best

Decision time Where the politicians stand on insurance issues April/May 2022

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insuranceNEWS.com.au is a free daily online news service for the general insurance industry. The website has more than 30,000 subscribers. In February/March we published 510 articles online.

These were made up as follows:

52 47 Local

Corporate

39

Regulatory & Government

49

Life Insurance

44

The Professional

41

Insurtech

40

International

BI TEST CASE WAITS ON HIGH COURT High Court appeal applications have been filed by two policyholders and one insurer participating in the industry business interruption test case, while separately The Star Entertainment Group is also seeking to overturn a previous decision.

Only a small number of appeal applications are accepted by the High Court, which may reject a case “on the papers” or hear oral arguments before deciding if it will further consider a matter.

“We do not anticipate that any decision on the special leave

some time, and the last thing anybody needed – clients and the insurers – was a thumping great catastrophe loss.

Marsh MD Head of Placement Asia Pacific John Donnelly on the east coast flood catastrophe.

48

The Broker

140 Daily

More than 34,934 news articles – including 381 breaking news bulletins – have been published since we started in 2001. All articles can be accessed through our archives. Access to news articles and other services provided by insuranceNEWS. com.au is free. 0 6 insuranceNEWS

April/May 2022

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STRATA REPORT HIGHLIGHTS ‘OPAQUE’ DISCLOSURE

Analysis

2

judgments so cover may be available under a clause, such as prevention of access, even if it is ruled out by disease exclusions elsewhere in a separate clause.

The only test case issue where an appeal is sought from the insurers’ side relates to payment calculations if a business interruption claim is ultimately accepted.

In Insurance Australia v Meridian Travel (Vic), IAG is arguing that JobKeeper should be taken into account, a stance that was accepted by the initial trial judge but not by the Full 0 Court.

The market was starting to be in better “ shape for clients than it had been for quite

8

Breaking News

applications will be made for approximately three months from the date the applications were made,” the Insurance Council of Australia (ICA) said.

Key issues in The Taphouse Townsville v Insurance Australia and LCA Marrickville v Swiss Re International relate to the way the contracts are read as a whole, while the restaurant’s application also looks at the causation link between a local outbreak and state government orders.

On the overall reading of contracts, insureds are looking to overturn lower court

Strata insurance is convoluted and property owners face a lack of transparency around commissions received by their management companies and fees paid to brokers, a consultation paper that’s part of a Steadfast-commissioned independent review says.

Reviewer John Trowbridge says current disclosure practices are controversial, partly reflecting the “unusual and

unorthodox nature” of arrangements involving multiple intermediaries, while even “high disclosure” practices are not very transparent to owners’ committees.

Current arrangements include practices where the broker commission is mostly passed back to the strata manager, while a separate broker fee is added to the total cost.

“The market structure for strata insurance is different from that for all other insurances because of the multi-owner nature of strata properties and the participation of strata managers in the chain from insurer to client,” Mr Trowbridge says.

“Insertion of the strata manager between the broker or underwriter and the owners has the effect of transforming the financial arrangements as between the owners and the other parties.”

The paper identifies that, as the strata sector has grown and demands increased, property managers have become more willing to use brokers, while both brokers and strata managers have their remuneration requirements.

Feedback is sought on current practices, definitions, the potential for more standardised disclosure formats, whether the new National Insurance Brokers Association (NIBA) Code of Practice will resolve shortcomings and other issues.

The consultation marks the first phase of the independent review of strata insurance practices. Phase two will look at possible reforms to remuneration and other intermediary practices and phase three will examine competition, affordability and availability 0 of strata insurance.

CYCLONE POOL BILL PASSES Cyclone reinsurance pool pricing must be released as soon as possible to give the industry time to factor in costs and to provide visibility to policyholders on premium reductions, the Insurance Council of Australia (ICA) said following the passage of the legislation through the Senate.

The legislation passed on what was expected to be the last Senate sitting day before the Government

announces the federal election, paving the way for the pool to start from July 1.

“The pool is scheduled to commence in just three months, so it’s vitally important that insurers and their customers are able to understand how and to what extent this will impact on premiums,” ICA CEO Andrew Hall said.

The Federal Government says more than 880,000 residential,

strata and small business property insurance policies in northern Australia are expected to be covered for the risk of cyclone and related flood damage through the pool.

The Government came under pressure in the Senate over its refusal to release modelling to back up assertions that homeowners with the most acute cost pressures are expected to see premium discounts

of up to 46%, while savings could reach 58% for strata properties and 34% for SMEs. ICA says a reinsurance pool is “just one piece of the puzzle” and ongoing floods have shown the urgent need for investment in measures to better protect homes and communities, in addition to funding provided in Tuesday’s Budget for the areas affected by the current 0 disaster.

months due to the latest wave,” the spokesman said.

Suncorp says that while some of its employees have been hit by covid “this has not had any material impact on how we support our customers”.

“Our people continue to demonstrate we can deliver for our customers in a hybrid workplace, and this does offer flexibility for people who are healthy but needing to isolate at home,” 0 a spokesman said.

INDUSTRY HIT BY COVID WAVE Significant numbers of insurance industry executives and staff around the country have been isolating with covid as Omicron levels rise. insuranceNEWS.com.au has spoken to dozens of industry professionals whose companies have been affected by the virus in recent weeks, but few would speak on the record other than to admit significant numbers of their staff have been forced to isolate.

Some pointed to the recent Steadfast Convention in Adelaide, where 1600 gathered last month, as a potential contributor to the spike.

However, the convention was held with strict entry requirements, and Adelaide – in common with many other communities around Australia – was experiencing a rise in cases when the convention was held.

One insurance company executive whose company has been affected by senior staff isolating with covid says delegates were “out and about a lot in Adelaide and could have caught it anywhere”.

A Steadfast spokesperson says the convention organisers complied with all venue control requirements, including preventing access to those who are not fully vaccinated.

Insurers say the covid wave is not impacting on the industry’s response to the current flood catastrophe.

An Allianz spokeswoman says that additional claims staff are being recruited.

“As with most other business across Australia, Allianz and its employees have been affected

by Covid-19 in various ways over the past few years, but particularly in the past couple of

APRA STATS SHOW ‘MAJOR IMPROVEMENT’ The general insurance industry made “significant improvement” in earnings for the year to December, as a sharp turnaround in underwriting results and lower claims losses combined to negate subdued investment returns, the Australian Prudential Regulation Authority (APRA) says.

On a quarterly basis however, APRA says the industry fared worse with net profit dropping 87.5% to $100 million in the December

quarter from the preceding threemonth period as hail and storm events squeezed earnings.

For the year to December net profit after-tax totalled $1.7 billion, compared with just $60 million in 2020, APRA data shows.

The underwriting result returned to positive territory, to $4 billion from an $80 million loss, while investment income plunged 76.3% to $400 million due mainly to unrealised losses on interest-bearing investments.

“This improvement was driven by strong underwriting results caused by higher premiums and lower claims but investment income continues to be subdued,” APRA says, referring to how the industry performed last year.

Gross earned premium went up 9.4% to $57.5 billion and gross incurred claims decreased 18% to $38.9 billion.

APRA says insurers reported higher gross earned premium in

most classes of business, including householders, domestic motor, fire and industrial special risks (ISR) and professional indemnity.

“This reflects the increase in premium rates across these classes,” the prudential regulator said.

The decline in gross incurred claims reflects lower incidence of natural catastrophe events in the householder class of business last year and in the reinsurance class of 0 business.

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QBE RESTRUCTURES LOCAL DIVISION QBE has “reorganised its Australian operating model”, leading to new roles and the departure of Phil White, who has worked with the company since 2006.

QBE says it has reorganised around two broad customer segments – Consumer and Business – as part of aims to enhance customer value and experience.

GM for Partnerships & Specialty Elliot Hill has been appointed to the role of MD Business.

Personal Lines Chief Customer Officer Eleanor Debelle has been appointed to the role of MD – Consumer.

Chief Customer Officer Commercial Lines Jason Clarke has moved to report

From the

PUBLISHER

to QBE Group CEO Andrew Horton, “to help create a global distribution function”.

“Clarke will work closely with the Divisional CEOs and distribution teams to improve the level of enterprise alignment and ways of working with global broker partners and ensure QBE is maximising the value of its distribution expertise across the globe,” QBE says.

Mr White, Chief Customer Officer Credit Lines and CEO QBE Lenders Mortgage Insurance, will be leaving QBE “as part of these changes”.

“Phil has been a valued and well-respected member of the AUSPAC leadership team,” Australia Pacific CEO 0 Sue Houghton said.

ICA CALLS FOR ACTION ON CYBER The Insurance Council of Australia (ICA) says action is needed to create a “viable and sustainable” cyber insurance market.

In a discussion paper, it warns that one major cyber incident could “render cyber insurance financially unviable”.

The report sets out a series of recommendations, and stresses that cooperation is needed.

“There are several areas of focus that need to be considered to help create a viable and sustainable cyber insurance market,” ICA says.

“Businesses, insurers and governments must work together to improve cyber capability and resilience.

“Insurance companies need to have the coverage right for

policies given the changing digital environment.

“Robust risk assessments and up-to-date analytics are vital in determining what protection a business needs.

“Better incident reporting, which provides insights into emerging risks, will support accurate pricing models for silent cyber and accumulation events.”

ICA CEO Andrew Hall says cyber insurance awareness is low within the Australian business community – with only about 20% of small businesses having cyber cover.

But the digital evolution of the economy and society, particularly since Covid-19, has resulted in increasing 0 awareness.

Another federal election season is under way, with all the politicking and boondoggling that marks its pleasingly brief passage. It’s also a time when industries start talking about what they want from Canberra. For the insurance industry, the list of “wants” is long and well-thumbed.

The election preamble is also an opportunity to ask the two leading parties what they propose to do for and with insurance should they form the next government. The Labor Party’s response to Insurance News was prompt and on-point; the Liberal Party’s response – pointers to a series of old ministerial statements that didn’t address our questions – was disappointing.

Deputy Editor Wendy Pugh has done a sterling job for this edition in stitching together a summary of Labor and Coalition policies relevant to the insurance industry. The article isn’t intended to spruik the benefits of voting for either party; it is offered merely as a guide to their relevant policies and approaches to insurance-related issues.

Meanwhile, the industry has a massive claims workload to work through even as staff and managers battle the impacts of covid. Infections have spread across most sectors of insurance.

A wave of infections in April led to emptied offices, but the insurers and brokers we spoke to were confident they could soldier on through isolation thanks to the “working from home” routines worked out over the past couple of years.

Our podcast on April 7 discussed the industry’s latest covid outbreak, with the participants agreeing that wherever we are and whatever we’re doing, if we’re with other people – even our own families – there is a risk of contracting the virus. But if you’re vaccinated and taking appropriate precautions, then it’s time to get on with life.

Insurance News has had its own covid-related issues. Over the past few weeks several key staff contracted covid, but we managed to maintain our daily online schedules. However, we were forced to push out this magazine’s production deadline a little. Knowing how all sectors of the industry have been affected by covid-induced staff shortages, I know you will understand.

Terry McMullan

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Deep trouble: record-breaking floods hit Lismore. Credit: Natalie McComas

P

eople and horses trapped overnight on a bridge, waters up to roof height and piles of sodden household debris will be defining images from floods that kept getting worse as storms spread and rains returned to areas previously inundated.

The Insurance Council of Australia (ICA) declared a catastrophe on Saturday February 26 for south-east Queensland. Two days later the declaration was extended to New South Wales as surging waters breached riverbanks and levees and floods reached record levels.

Torrential rainfall then extended further south, pounding the Sydney region, while affected areas have been drenched again during March and into April.

Insured losses reached an estimated $2.4 billion and were still climbing by the start of this month. The total has passed losses from the 2019-20 Black Summer bushfires and from the 2011 Brisbane floods.

“It’s some of the most widespread devastation I have witnessed, and it is a tragedy for so many Australians,” Suncorp Chief Executive Steve Johnston said after spending time on the ground in Gympie, Lismore and around south-east Queensland.

“There's a lot of heartbreak out there in many of these communities, with many of our customers, who we're working very hard to get back into their homes as quickly as we can.”

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April/May 2022

NSW Deputy Premier Paul Toole, visiting the Northern Rivers region, pointed out the magnitude of the clean-up, saying 17,000 truckloads of debris had been taken away, equivalent to about 110 Olympic-size swimming pools, with about 100,000 tonnes of material expected to be collected.

The Insurance Council of Australia (ICA) has been working with local, state and federal governments as the response has shifted from rescue to recovery, and has received acknowledgment from Premier Dominic Perrottet.

“I think if we look over the past whether it’s been through bushfires, whether it’s been through floods, we have always relied on our insurance companies to work with the government, to work with local communities,” he said at a media conference. “We very much appreciate that engagement because the recovery and construction and rebuilding of these communities is going to be crucial.”

ICA has liaised with federal authorities on expediting visas for the deployment of key insurance personnel to Australia and insurers were also involved in aerial surveys of Lismore, Ballina, Grafton, Murwillumbah, Gympie, Maryborough, Brisbane and Logan to help assess damage while flood levels remained high. Industry personnel were on the spot as soon as waters receded.

Washed away Insurers are stepping up as communities face a long rebuild following the catastrophic Queensland and NSW floods

By Wendy Pugh

Suncorp says it is recruiting an extra 600 people to speed the recovery process, including leaders in disaster response and event claims, event response co-ordinators, claims managers and customer service specialists.

The enormity of the disaster became clear as surging claim volumes quickly outpaced lodgement trends from the extreme weather catastrophe of a year earlier, and from the Townsville monsoonal floods in 2019.

Total claims received had reached around 170,000 by early April, putting pressure on an insurance sector already dealing with a high level of losses from ongoing summer storms and recent catastrophes amid impacts from the covid pandemic.

ICA advised early that under catastrophe protocols insurers would triage claims to deal with the most urgent and severe first, and cautioned that global materials shortages and local labour constraints would affect rebuilding and recovery timeframes.

A recent Housing Industry Association update highlights deteriorating availability across skilled building trades, while ICA notes Australian Bureau of Statistics data that shows strong demand for building materials has caused rising housing construction input costs.

Brokers say many insurers’ claims services have deteriorated under the weight of various pressures and as

they deal with difficult circumstances.

MGA Claims and Communications Co-ordinator (Operations) Mark Fitzgerald says phone and email responses from insurers are taking longer. Covid has also added complexity as people, including loss adjusters, builders and clients, have fallen ill or isolated as a result of the recent virus wave.

“These are unfortunate circumstances and it really is the perfect storm,” Mr Fitzgerald tells Insurance News.

The severity of the flooding is partly attributed to a second consecutive La Nina event. The climate driver, which is currently weakening, is typically associated with increased rainfall in the country’s east and has been responsible for some of the nation’s worst natural catastrophes.

During the recent storms Brisbane received 80% of its annual rainfall in three days and parts of NSW recorded their highest daily and monthly rainfall on record in March. Dunoon, near Lismore, reportedly received 775mm of rain in one 24-hour period.

IAG Executive Manager Natural Perils Mark Leplastrier says records show Sydney has experienced its wettest summer in 30 years, and the most humid in a decade, with weather patterns driven by warmer than average ocean temperatures in the Coral and Tasman seas under La Nina conditions.

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Devastating damage: the clean-up begins in affected properties. Credit: Natalie McComas

“This provided a source of moisture that successive low pressure systems tapped into through summer and early autumn, and ultimately led to the extreme rainfall and record flooding in Queensland and northern NSW,” he tells Insurance News.

“Higher rain rates and storm total rainfall is a theme that is starting to emerge from the climate change science. With further climate change, these types of events should become more frequent or intense in the future.”

Mr Leplastrier says research that IAG’s Natural Perils team developed in conjunction with the US-based National Centre for Atmospheric Research found extreme tropical cyclones, storms, hail, floods and bushfires are becoming more frequent in warmer climates, and communities in Australia are experiencing this first-hand.

“Over many years we’ve highlighted the importance of greater investment in mitigation initiatives to protect lives and property, as well as making insurance as affordable and accessible as possible for these communities,” he says.

The floods have put the spotlight on the cost of disasters to government. The Federal Coalition says it expects to spend more than $6 billion on disaster relief and recovery. Queensland and NSW have announced a number of separate measures.

A $771 million Queensland Government disaster package, which has been welcomed by insurers, includes funds for retrofitting, raising houses or for the potential voluntary buy-back of homes at high risk from future floods.

In NSW, flood-prone Lismore is at the centre of debates around what can be done for established

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properties and communities in high-risk locations, given the increasing magnitude of events.

The town, nicknamed “the wok” because of its terrain, was inundated after Cyclone Debbie when a levee – completed only 17 years ago – overtopped. The flood peak on February 28 this year exceeded 14 metres, two metres higher than the 1954 record and well above the levee height.

The levee then overtopped for a second time in less than five weeks when the rain returned.

Risk Frontiers General Manager Resilience Andrew Gissing says climate science behind a recent UN Intergovernmental Panel on Climate Change report suggests Australia will see worsening extreme weather events.

“This will only place greater pressures on insurance premiums, making insurance unaffordable for people in the highest-risk areas,” he says. “It is essential we prepare for what may previously have been considered ‘unprecedented’.”

While more can be done, eliminating risk by removing homes and businesses from floodplains would be an expensive exercise, he says.

“In the US, large-scale schemes are routine, allowing homeowners to sell their properties to the government so the area can be returned to open floodplains,” Mr Gissing says. “But property is generally much more expensive in Australia. The purchase of flood-prone properties in Lismore alone would likely cost more than $1 billion.”

Swiss Re research shows the need for action on flooding is not just an Australian problem. Around the world climate-related weather events are devastating, and the protection gap is widening.

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Aftermath: treasured possessions have been ruined. Credit: Natalie McComas

Global economic losses from floods came to $US82 billion last year, while insured losses stood at slightly more than $US20 billion. Yet floods have been less well monitored compared to “primary” perils such as cyclones and earthquakes, which tend to happen less frequently but with high loss potential.

“Given the scale of devastation, flood risk deserves the same attention and risk assessment rigour as primary perils such as hurricanes,” Swiss Re Head of Catastrophe Perils Martin Bertogg says.

The reinsurer has called on the global industry to give flood risk greater attention when it comes to exposure data capturing, sharing and model use, and highlights the need for flood defences and long-term investment in sustainable infrastructure.

“With due attention on different fronts, re/insurers will remain primary agents of economic and social resilience against the ubiquitous risk that is flood,” Swiss Re says.

Australia’s previous worst flooding catastrophe in 2011 – which was also in La Nina conditions – saw Brisbane inundated, while Cyclone Yasi caused extensive damage in northern Queensland. The losses triggered flood insurance reforms, but a decade later underinsurance, non-insurance and affordability remain critical issues.

“Insurance prices risk, and that means that for those in flood-prone locations, particularly small businesses, flood cover can be costly,” ICA Chief Executive Andrew Hall says.

“That is why the ICA has called on all Australian governments to do more to protect homes, businesses, and communities from the impacts of extreme weather.

“With appropriate mitigation infrastructure and household-level programs, property can be better

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protected and premiums can decrease, but this can only be achieved if governments act with urgency.”

Those calling for an extension of the Federal Government’s cyclone reinsurance pool have warned the floods are likely to fuel premium increases for residents in high-risk areas.

It’s an issue set for scrutiny, along with the wordings and cover provided by insurance policies.

The Financial Rights Legal Centre, which has called for standardised definitions of storm and other perils and greater clarity on exclusions, anticipates it will be contacted by homeowners who are caught out despite best intentions.

It says even flood insurance is not always clear, despite the introduction of a standard definition in the wake of the 2011 catastrophe.

“We do expect to get a lot of calls from people who are either underinsured or who are excluded from a claim due to the definitional issues,” Senior Policy and Advocacy Officer Drew MacRae told Insurance News.

As the clean-up continues, the immediate recovery and future implications will present challenges for the insurance industry, other responders and all levels of government. There are sure to be plenty of reviews.

The NSW Government has already announced an independent inquiry to examine experiences and to make recommendations on issues including preparation and planning and ways to better future-proof communities. Reports are due by the end of June and September.

“No two floods are the same and there is no formulaic response, but when it comes to natural disasters, we 0 can never be too prepared,” Mr Toole says.

Poll pressures Politicians seeking election in the wake of devastating natural catastrophes may finally be heeding calls for resilience spending

By Wendy Pugh

A

fter years of insurers beating the drum, disaster resilience has become an electoral issue as voters prepare to go to the polls in May following a Federal Government term virtually bookended by two of the nation’s worst natural catastrophes.

Insurance affordability and resilience was particularly on the radar in northern Australia, before the recent Queensland and New South Wales floods. Prime Minister Scott Morrison announced a cyclone reinsurance pool last May while visiting the region, as well as $600 million for mitigation under a six-year Preparing Australia Program.

Labor upped the ante in January, committing to spend up to $200 million a year on prevention and resilience, revamping the Emergency Response Fund and creating a Disaster Ready Fund.

Insurers have become even more vocal on resilience this year as bushfires, hailstorms and floods and the expected impacts of a changing climate have given the issue traction.

The Insurance Council of Australia (ICA) released its pre-election policy platform in February, titled Building a More Resilient Australia. The policies include a call for federal funding of at least $200 million a year over the next five years, matched by states and territories for a total $2 billion commitment.

The document notes “welcome

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investments” including the $600 million program announced by Mr Morrison and $40 million to make strata buildings more resilient, but says more is required.

“In an election year our simple message is this: in the face of worsening extreme weather the next Australian Government must boost investment in stronger homes and the local infrastructure that make communities more resilient,” Chief Executive Andrew Hall says.

“This means subsidies to improve the resilience of the nation’s homes and businesses to cyclone, flood and bushfire, as well as projects that protect the community, like levees, floodways and prescribed burning.”

Insurers have paid out more than $11 billion for natural disaster claims since late 2019 and the cost of the recent floods is still climbing. The total includes $2.3 billion for the 2019/20 Black Summer bushfires, $1.1 billion for the Halloween hailstorms and around $760 million for storms in Victoria and South Australia late last year.

Shortly after the ICA released its policy document, torrential rainfall began in Queensland and NSW, triggering the flooding catastrophe. Claims had reached an estimated $2.4 billion by the start of this month.

The Federal Government’s final budget before the election, delivered on March 29 against the floods backdrop, highlights immediate responses, while releasing an

additional $150 million for recovery and post-disaster resilience measures from the Emergency Relief Fund for 2022-23, targeted at the hard-hit regions. Other natural peril preparation measures are also included.

Mr Hall says spending on flood-affected regions is welcome, but dozens of communities in Australia remain exposed to perils like cyclones and require similar assistance to “uplift their mitigation”.

The Productivity Commission says 97% of disaster funding is spent after a catastrophe and just 3% spent on measures beforehand.

“In the lead-up to the election in coming weeks it is incumbent upon the Government to not only assist with recovery, but announce further investments to better protect communities from the impacts of extreme weather,” Mr Hall says.

Labor Party Assistant Financial Services spokesman Matt Thistlethwaite tells Insurance News the party is targeting emissions reduction and resilience measures to address climate change and extreme weather impacts.

“We see it as a problem that needs a solution, and we look forward to working with the insurance industry to deliver that solution by reducing Australia’s emissions and protecting communities and households through mitigation,” he says.

Projects including flood levees, sea walls, cyclone shelters and evacuation centres, supported by a Disaster Ready Fund,

Clear message: flood victims and insurers need more from the next government. Credit: IAG

will assist with spiralling premiums in disaster-prone regions by reducing the risk of expensive damage to homes and businesses, he says.

Insurance News put questions to both sides of politics on policy positions ahead of the election. The office of Assistant Treasurer Michael Sukkar declined to respond directly, while pointing to comments already made, particularly on the cyclone pool.

The reinsurance pool bill passed the Senate during its final sitting day before the election as debate continued on whether promised savings would be achieved, the prospect of extending it to flood and the need for mitigation.

“Explicitly in its mandate, we have put in place a process whereby any excess funds, any profits, should be diverted into mitigation projects,” Mr Sukkar says. “It becomes an almost virtuous cycle of savings from the reinsurance pool get put into fortifying those communities even further.”

Labor voted for the bill, rather than delaying it for amendments, but says it would consider expanding the scheme to include non-cyclone-related flooding as part of a later review.

“In the wake of the most recent flooding, the cost of flood insurance is going to go up and up and beyond the reach of many households, and small businesses,” Mr Thistlethwaite says. “There’s a clear justification, particularly based on what we’ve

seen over the last couple of weeks, for the Government to look to extend this scheme to cover flooding, and hopefully reduce those costs for consumers.”

ICA says a reinsurance pool is only one “piece of the puzzle” and the floods show the urgent need for investment in measures to better protect homes and communities before disasters happen.

The council’s policy platform calls for a national review of land use planning to prevent home building in high-risk locations and seeks national building code updates so resilience is central alongside health and safety objectives.

Mr Thistlethwaite told Insurance News Labor would have more to say on those issues “in coming weeks”.

ICA’s 12-point policy agenda also seeks Privacy Act amendments to allow “prudent” data sharing between insurers and government agencies to assist with disaster planning, collaboration on cyber risks, a national review of tort law, and changes so legal test cases could be brought in a similar way to UK arrangements.

The document reiterates longstanding demands for states and territories to abolish duties, levies and charges on insurance, as the affordability debate and inadequate cover concerns underscore the issue.

The Howard Government’s removal of various state taxes and charges with the introduction of the goods and services tax

provides an example of what can be accomplished, ICA says.

“Given the public policy benefits of adequate insurance cover there is a clear role for the Commonwealth to lead by providing incentives for states and territories to undertake reform in this area, as it has done with economic reforms in the past,” Mr Hall says.

Mr Thistlethwaite says Labor will “work with the states to ensure the insurance system is as efficient and effective as possible”.

Coalition politicians have put pressure on the Queensland state Labor government on the issue but haven’t proposed a national strategy.

Disaster preparedness may be more likely to feature in party statements as politicians campaigning across the country hear from people who have experienced catastrophes. Many are seeking answers from their representatives around protections for their homes and communities as floodwaters recede.

“Our sense is that the conversation has changed in the past few months and weeks and that there is a lot more receptiveness to this message about investing more in resilience and mitigation,” ICA General Manager Public Affairs Mathew Jones told a Senate committee last month.

“I think Australians have seen this movie before and they want a different ending.” 0 *Also see maglog, page 58

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Changing perceptions: IAG’s Jarrod Hill

Getting CGU back in the game Jarrod Hill has a plan to get the insurer’s mojo back and realise its potential

By John Deex

A

fter a tough period of remediation and underperformance, IAG’s intermediated division believes it has the team and the strategy in place to head into the post-covid era with confidence.

Group Executive of Intermediated Insurance Jarrod Hill arrived in September last year, enticed from the country president role at Chubb for an opportunity he couldn’t resist.

Mr Hill started his career at Commercial Union, which in 1998 merged with General Accident to become CGU, and admits to always having had a soft spot for the brand.

So not surprisingly he was intrigued by the idea of leading the business “back to where it should be”.

“I had no driving force to leave Chubb,” he tells Insurance News. “I have the utmost respect for that organisation and always will.

“But just hearing [IAG Chief Executive Nick Hawkins’] ambition for the business, his passion… How do we make this the best intermediated business in Australia? How do we get CGU back to where it was?

“And really the opportunity to work in the largest insurer in Australia. Those were a couple of the key drivers.”

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IAG announced last year that the intermediated side of the business – CGU and WFI – had “underperformed”, launching a turnaround plan targeting $250 million of insurance profit by FY 24.

Mr Hill says a lot of the foundational work is already complete, with a new distribution model, team and structure in place.

He says ruefully that CGU has had a reputation for being “good at doing business with ourselves”. He’s put key measures in place to step away from that and drive a more external focus.

Firstly, a “really clear underwriting appetite”. Mr Hill says the establishment of an underwriting office under EGM Underwriting Darren O’Connell (formerly a senior executive at Suncorp) has enabled a “stepchange” in capability.

“What do we want? What are we going to take a really close look at and maybe not do a lot of? We have confidence to engage with our broking partners about our risk appetite, the business we want to do, and then really go after that, and shape very structured discussions and be very outcomes-focused with our broking partners.”

CGU is moving out of the remediation phase, and will look to grow some parts of the portfolio, including the larger account space.

“The reality is, we haven’t been writing a lot of business over $500 million in asset value,” Mr Hill says.

“We’re really going to step back into that space.

Darren O’Connell will be a big part of that, building a team and a capability under him.

“But that’ll be all based under the CGU banner. We feel it’s really important for the industry that additional capacity is brought back into that space.”

CGU is also exiting some personal lines portfolios that weren’t delivering their margin, enabling acceleration in other areas that were.

It’s also re-underwriting its agribusiness across both WFI and CGU, and is now returning to growth in that area too.

After appetite, there’s pricing. Former PwC partner Christa Marjoribanks has joined as EGM Product, Pricing and Governance, bringing “deep knowledge in actuarial practice”.

“It’s about really building out a strong pricing capability so we can be confident in the prices that we put within our models, and having a much better and more refined product offering.”

Mr Hill says too many products can replicate work.

“We’ve got products all over the place at the moment.

We’ve talked about doing business with ourselves, and

we get stuck looking after a product, making this or that change, but then we have to do it five times.

“It’s really about simplification…a lot of clarity around pricing and product offering, being really clear on underwriting appetite, and then having that go-to market strategy.”

The final piece in the puzzle is digitally enabling the business – an area where Mr Hill accepts CGU is “behind the pack”.

Previous investment hasn’t delivered the desired outcomes, but there’s now a clear path forward.

“There will be significant investment. That’s broadly across the group, enhancing digital enablement.

From the intermediated side, CGU and our brokers will feel the biggest positive impact from that because of the under-investment in recent years.”

Coming from the back of the pack might not be such a bad thing, given the pace of change in recent years.

“I think that gives us the opportunity to step ahead.

And if we build this out right and deliver, stay ahead.

“We see with our broking partners [that] there’s pressure on margins. There’s going to be pressure on commissions and other things.

“So it’s going to be imperative we remove frictional costs from the process and deliver better outcomes for the end customer. We still touch a lot of our package business. We’re still touching some of the things that are transacted on the big platforms too much. How do we automate that?”

There will, of course, be challenges along the way.

Mr Hill singles out pricing for perils as an issue the whole industry is grappling with.

Average claims costs are continuing to rise, with every year seeming to be worse than the last.

“What’s the long-term average?” Mr Hill says. “And what do we have to price in for weather-related events?

That’s probably the biggest single challenge facing the industry for pricing now.

“Is this global warming? Is it a long-term change?

Is it the La Nina impact? What are we seeing right now and how do we price for that?”

IAG is taking a lead on helping governments to make decisions around mitigation. But Mr Hill says the group isn’t keen to see the Federal Government’s upcoming cyclone reinsurance pool extended to cover all flood risk.

“We don’t believe it should be extended. It hasn’t even launched in regard to cyclone yet. Let’s be very specific and get the pool to work for what the Government wanted it designed for, which is Far North Queensland’s cyclone capability, where they believe the market hasn’t met customer needs.

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Targeting growth: Mr Hill says CGU “won’t shrink to greatness”

“People will have their own views on that. But I think it needs to get structured for solving that issue first.

“The flood issue is a much broader, far more complex issue than that. I think it would be fraught with danger to extend that pool to include other perils outside of cyclone.”

Other areas requiring attention include some longtail classes of business and expense ratios.

Analysts have honed in on the issue because IAG’s expense ratio in the intermediated business is higher than that of its direct competitors.

“How do we create efficiency in our business, and start moving or reducing our expense ratio?’ Part of that’s growth. So that will start coming through and flowing through our business.”

Mr Hill is proud of CGU’s claims service, which he says has strong supply chain arrangements in place to deal with surges like the current flood catastrophe.

But he says there’s never room for complacency.

“With claims, it’s imperative we always remember that’s all we sell – a promise to pay. So we’d better deliver on that.

“We’ve got amazing capability in our claim space.

I think we probably see that best at catastrophe event time, and that’s right across IAG. That’s not just our intermediated capability.”

Mr Hill says claims teams were quickly on site in places like Lismore and Brisbane supporting customers, but adds there are “things we can improve”.

One example: “Those simple claims and those dayto-day claims that still take too long to get through.

“So how do we improve the process where an Australian business can lodge the claim, and we get that through the system really quickly?

“Whether it’s a cash payment or we’re getting someone on site to fix the issue in a far quicker timeline so we’re not taking people away from their business.

That’s the whole goal at the end, to minimise the impact

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on a business and get that person back operating as they should – whether that’s a simple claim or something more complex.”

Competition from new sources is also on Mr Hill’s radar, with the potential for non-insurance entities to come in and try to disrupt the industry.

That’s why he says it’s so important to remove frictional costs.

“We need to get capacity to the insured in a cheaper fashion that meets their needs. That’s probably a challenge ahead for the entire industry.”

Mr Hill says growth for CGU is vital.

“Growth through this year has largely been a result of rate but new business acquisition has been improving and we anticipate we will start growing customer numbers as a driver of premium growth.

“The way we’ll get there is by growing. We’re not going to shrink to greatness. We’re not going to shrink to $250 million [insurance profit].

“It’ll be a combination of stepping up into that larger account space, but also improving our engagement with our brokers and being really clear about appetite and what we want, and just being more out in the market with our broking partners.

“I don’t want to hear that comment, ‘you’re good at doing business with yourself’. I want it to be recognised that CGU is easy to do business with, that we’re a good partner, and we find solutions. That’s the expected outcome in the next two years that our broking partners will see from us.

He says CGU has “great talent” in its ranks. “My job is to bring that talent forward and enable that talent to really fulfil their potential.

“I always say I don’t have to bring about major change, I’ve just got to bring the talent forward to be really successful.

“Six months on and I’m more excited now than I was when I joined when I look at what we can achieve.” 0

Mixing it up SMEs are increasingly buying some insurance direct and some through brokers, Vero’s latest Index report shows. Here’s why

By Wendy Pugh

T

he percentage of SMEs buying almost all of their insurance through brokers is falling. So what’s driving businesses to mix up their purchasing? And should advisers see the trend as a worrying challenge?

Vero’s SME Insurance Index has revealed many changes in the relationship between brokers and their clients over its 11-year history, and the latest edition is no different.

Key findings from this year’s Index, which involved an extensive nationwide survey of 1500 SMEs, show only 14% of the companies surveyed bought “almost all” of their insurance through a broker. That’s down from 27% last year.

The drop mainly reflects an increase in those using a mix of channels, rather than a surge in SME owners and managers not using a broker at all.

Vero says the mixed usage growth can be seen across all types of businesses, and is particularly high among those where at least five people work at a firm.

“Mixed purchasing appears to be the norm for these small and medium-sized businesses, which raises the question: are brokers comfortable with this mix, and does this decline in brokers’ share of overall insurance coverage matter?” the report says.

SMEs tend to nominate ease as the main reason for buying direct, while price is also important. The reasons for businesses choosing a particular channel, the services they value and their levels of satisfaction are explored throughout the survey.

“You don’t generally wake up in the morning, saying to yourself, today is a good day to buy insurance,” Vero Head of Commercial Intermediaries Anthony Pagano tells Insurance News. “We had to ask

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Figure 1.1: % of policies bought through a broker % of policies bought through a broker 2018

31%

2019

24%

2020

24%

2021

42%

61%

15%

51%

29%

2022

27%

25%

44%

32%

27%

54%

Non users

14%

Light to moderate users

Heavy users

Figure 1.6: Reasons not to use a broker for their last or most important policy

Reasons not to use a broker for their last or most important policy 40%

46% 33%

30%

31%

34% 21

%

I can do it easily enough myself

It would be more expensive to go through a broker

I don’t want to deal with a middle person / rather do it directly

Direct buyers who still use a broker for some policies

ourselves, why are SMEs purchasing differently at different points of their business lifecycle?”

The answer is simple enough. Businesses are buying direct in areas they see as more straightforward, with technology smoothing the process.

Fair enough, but Mr Pagano notes SMEs

22%

I think they are more likely to recommend a policy that offers them the biggest commission

27% 19%

I don’t see the benefit in using a broker

Total direct buyers

are often unaware of exposure gaps or pitfalls that may impact an enterprise, no matter how simple it may seem.

Policies less likely to be purchased through a broker compared to two years ago include commercial property, machinery and equipment breakdown, workers’ compensation and commercial motor.

The Vero SME Index, for the first time this year, also separately reports findings from a smaller sample of companies employing at least 200 people. They show cyber, a fast-changing product, is among cover being increasingly bought direct.

Other classes include professional indemnity and business interruption.

The Index suggests some brokerages may be comfortable with the trend to mixed usage, allowing them to focus on more complex risks.

But it cautions that having a holistic view of a client’s insurance allows brokers to identify a wider range of risks and thereby demonstrate their expertise.

Interestingly, 93% of SMEs who have moved part of their insurance to the direct market say they remain highly satisfied with their broker.

Despite the mixed buying trend, satisfaction levels with brokers are high. Some 84% of SMEs score their broker eight or more out of 10. That compares to 60% last year, and satisfaction levels ranging up to 70% during the past four surveys.

Vero says the jump in satisfaction may reflect the unique global circumstances of the past year, amid the pandemic, while the hard market has provided opportunities for brokers to show their value.

Mr Pagano says with so much pandemic-induced uncertainty, SMEs have welcomed the support and reassurance of brokers looking out for their interests – particularly when claims added to covid disruption pressures.

“When things were quite tough, getting that local personal service went a long way,” he tells Insurance News.

The survey highlights the value of brokers at claims time, but also shows annual renewals – an obvious time for contacting clients – are often a missed opportunity for demonstrating expertise and building relationships.

Just 48% of clients say their broker reviewed their insurance during their last

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Figure 1.7: Top 10 reasons to try a broker

Top 10 reasons to try a broker Getting cheaper prices from a broker

31%

Guidance on insurance issues

17%

Helps me to choose the right insurance brand

16%

A broker would provide expert knowledge and advice

16%

Service that is personalised to your needs and the needs of the business

16%

A broker has access to better policy wording than you can get

15%

Explains inclusions / exclusions / limits in policy wording

15%

They perform a risk assessment of my business Getting more quotes from a broker

Using a broker results in claims being resolved with less hassle

14%

13%

12%

renewal process. A further 14% made changes based on their own research and analysis, and 38% simply renewed “as is” without any review or advice.

The report identifies some gaps between services SMEs rate as important and what they say their broker actually provides, including in advocating on their behalf to insurers and providing information on emerging risks.

It also delves into perceptions of “good service”.

Some 23% of broker clients say it’s all about “knowledge and experience”, 23% identify “understanding my needs”, and 17% say it is about competitive premiums. In the case of direct buyers, 30% say good service comes through competitive premiums.

Vero says the data suggests price might

be a good initial conversation point with direct buyers. But more is required to build and sustain longer-term client relationships and to convince mixed users to purchase more policies through a broker.

Mr Pagano says having a deep understanding of an insured’s operations provides opportunities to address risks and to find cost-effective ways to protect the business.

And with covid-related uncertainties persisting, now is also a good time for re-connecting, re-positioning or reinforcing the strength of client relationships.

“Brokers can initiate conversations with SMEs about value, cost-effective insurance, how they can make the process easier, and help them feel more supported end-to-end,” 0 he says.

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Getting back to normal: brokers and agencies interact at the Sydney expo

The unstoppable third force They bonded with brokers during the pandemic.

Now underwriting agencies aim to grow the relationship

By Bernice Han

T

ight underwriting in the insurance market over the past few years has meant frustration and hard work for brokers as they tried to wrangle reasonable rates and conditions for clients with risks best described as non-vanilla.

While they’ve had their own capacity problems, underwriting agencies have stepped up to the challenges of hard-to-place risks. The agencies are seldom in the spotlight, and their role as the “third force” in insurance isn’t well understood by most outside the industry –like brokers’ clients.

They might initially find the concept confusing when their broker raises the option, but the agencies’ specialist focus has been a godsend for many. Think about unusual risks like vintage wine collections, museum artefacts or even covid vaccine shipments.

Or hard-to-place risks like entertainment or amusement parks.

It’s not only their willingness to work on hard-to-place or unusual risks that encouraged brokers to turn to underwriting agencies for relief when the going got tough.

Specialist underwriters bring to the equation niche skills that are not easily available in the broader market.

Each agency is a specialist, arranging insurance for risks in which they have considerable expertise. What sets them apart is their pricing acumen and knowhow in tailoring bespoke solutions.

As one broker put it to Insurance News, clients struggling to obtain insurance have come to regard agency underwriters as “problem solvers” for complex and hard-toplace risks – a category that isn’t getting any smaller.

Not all risks have been covered by the agencies because many have capacity issues.

But business has nevertheless boomed.

Underwriting Agencies Council (UAC) Chairman Kurt Nilsen estimates underwriting agencies wrote around $8-9 billion in gross written premium last year.

While some have no doubt found the past few years tough, he says that “overall, UAC member agencies have all seen an increase in business and growth”.

And the agencies are continuing to find capacity to build business. Mr Nilsen’s own company Lion Underwriting is an example. In 2019 he accused Lloyd’s of lacking “consistency and enthusiasm” in covering Australian marine-related risks, but found

ready support with Hong Kong-listed China Taiping Insurance.

Another that found capacity when the chips were down is Coversure, an underwriting agency “that went above and beyond” for the beleaguered amusement, leisure and entertainment industry – a higher-risk group which has had ongoing problems obtaining affordable, or even available, public liability insurance.

Many theme park operators or associated businesses were pushed to the brink by the insurance crunch. Some closed down.

Premiums increased by as much as 200% in some cases, with the situation exacerbated by a scarcity of willing insurance providers.

Coversure set out to find a new partner after its previous binder with Lloyd’s ended in February 2020. It returned to the market in August last year, offering public liability insurance for the industry again after securing a line slip facility with a new capacity provider – Aviva, the UK’s largest general insurer.

The agency’s General Manager, Adrian Gamble, says the agreement with Aviva initially allowed for the placement of up to $10 million for each policy that is

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accepted. In November it increased the limit for Coversure to write up to $20 million for most risks it accepts from amusement, leisure and entertainment clients.

“This was an opportunity we developed with one underwriter with the detailed data we had on file and by both parties working professionally and co-operatively to look for solutions in limited occupations,” Mr Gamble tells Insurance News.

He says Coversure, which works with a select group of broking partners on amusement risks, has seen a strong response since it started offering public liability insurance again. “We’re just struggling to keep up.”

Underwriting agencies have the niche expertise to drill down on brokers’ submissions, and Coversure places a strong emphasis on risk management to ensure the businesses they are considering are taking their own steps to minimise risks.

Mr Gamble says the work involves more than just going through applications submitted by prospective clients.

“An insured whose submission for public liability insurance has been accepted has to have demonstrated they have met the risk safety settings criteria set by Coversure and our security provider.”

Compliance documents aren’t enough.

Coverforce’s list of requirements include proof that the client has up-to-date mitigation measures in place and that staff undergo regular safety training refreshers.

Applications that did not make it past the first round of assessment are usually not rejected immediately, Mr Gamble says. The agency often takes another look to ascertain if solutions can be found.

He says the agency recently received a submission in which it could only provide about two-thirds of the public liability insurance coverage needed, so it worked with the client’s broker to find another agency that could provide the rest.

“We’ve managed to come up with something where there’ll be a policy. There’ll be

two policies but it gives them a cover for everything they do.

“I’d like to think we are problem-solvers.

Even if we’re not going to cover everything, we will still look at coming with a solution.”

Mr Nilsen says Coversure’s success “is a fine example of an agency that is able to work through the challenges of the market and then provide a solution”.

“Thinking outside the square and looking at alternative solutions – that’s what underwriting agencies do,” says Mr Nilsen, who set up Lion Underwriting in 2015.

He says UAC members have “pushed on” despite more than two years of covid restrictions and economic uncertainties caused by the pandemic, and he believes the sector is capable of scaling greater heights in the coming years.

“The underwriting agency market will continue to grow,” he says. “More and more brokers have come to appreciate our expertise.

“Some brokers wouldn’t deal with agencies in the past but now they do. They have learned to trust agencies a lot more. It’s a sector that a lot of brokers can’t ignore.”

Mr Nilsen, who retained his UAC chairmanship in December, is now looking to prepare the sector for the post-covid world. This will include a return to in-person training seminars as well as the resumption of UAC expos without capacity restrictions.

Since last year UAC has held several expos, usually in collaboration with the National Insurance Brokers Association. It has abided by all covid-safe protocols, and the response from brokers who attended has been “very positive”.

“The most important thing is we will be getting back to what we consider our normal trading environment post-covid,” Mr Nilsen says.

“We will be focusing on providing value to our members agencies, and that is primarily through our underwriting expos. That’s where our members get to

engage with brokers.”

Mr Nilsen says the UAC board is also busy working on a strategic plan for the next three years.

“We’re putting covid behind us, because it’s time to start looking forward and not backwards,” he says. “We will continue to grow the agency sector and our brands, which are already strong and well received in the market – but we know we can do more.”

Lloyd’s General Representative in Australia Chris Mackinnon agrees, saying there will be no turning back for the agency sector.

He says underwriting agencies are “specialty risk solutions craftsmen who rely on more than just algorithms to write niche risks”.

Innovation runs deep in the sector, and that’s an area where Lloyd’s is lending plenty of support to its distribution partners.

Mr Mackinnon lists parametric products as one way Lloyd’s is putting in significant effort and reaping dividends. Unlike traditional insurance solutions, parametric payouts are triggered if pre-set conditions are met, as opposed to meeting actual losses experienced.

Last November Redicova, a Lloyd’s coverholder based in northern Australia, started offering retail parametric insurance for tropical cyclones.

Another two parametric offerings are in the works, he says – one for hail and the other for covid-related recovery.

Mr Mackinnon says the Australian market for Lloyd’s has been “continually and consistently” growing, except for a small hiatus during covid.

The market has received a “significant” number of new coverholder applications, on top of new entrants that have already set up shop in Australia.

“We’re ready, we’re fired up and looking forward to strong opportunities and innova0 tive new growth,” Mr Mackinnon says.

underwriting agencies for insurance solutions is also fuelling Lloyd’s upbeat outlook.

Lloyd’s General Representative in Australia Chris Mackinnon says the Australian business recorded gross written premium (GWP) of $3.4 billion last year. In 2020, GWP flatlined at $3 billion because of the pandemic. Before covid, Lloyds’ GWP expanded by about $1 billion in the five years between 2015-19.

“The next couple of years are going to be an

extremely positive story for Lloyd’s in Australia,” Mr Mackinnon tells Insurance News. “We’re seeing an increasing appetite by the market to put more capacity in Australia because they are getting the returns.” “[Underwriting agencies in Australia] have stabilised, and we’ve now got strong, sustainable underwriting agencies that are able to produce quality portfolios – well underwritten profitable business. They will absolutely thrive.”

Positive future Lloyd’s, the biggest security provider to Australia’s underwriting agencies, predicts its business in Australia will keep growing.

The venerable market draws its optimism from several trends. They include the way its business has bounced back after more than two years of covid interruption, and the remediation work the business has undertaken in the past few years to strengthen its books.

The trend of more businesses turning to

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ADVERTORIAL

Safe driving = efficiency …and efficiency is the best way for fleet operators to keep their fuel bills down and their vehicles on the road. Here’s how.

ADVERTORIAL With fuel costs rising dramatically over the past couple of months, vehicle economy has become a big issue for Australia’s fleet operators.

Whether they’re looking after a small fleet of cars, local van deliveries or hefty loads, the operators are working in an environment where customers are increasingly strident in their demands for prompt deliveries locally and nationally.

Such demands work in total opposition to the need for greater attention to conserving fuel and behaving safely on the roads.

But Mervyn Rea, the Melbourne-based Head of Zurich Resilience Solutions, says a balance between high service demands and reducing fuel consumption can be found. The key is driver behaviour.

Mr Rea recognises the pressures client fleet operators are working under – pressures that can all too easily see them slip into compromises.

Those compromises invariably centre around lower levels of vehicle maintenance and – just as importantly – the focus on safe driving techniques.

But spending less on vehicle maintenance and safety to counter the higher cost of fuel – and meet the insatiable demands of customers – is a false economy.

“Safety should be paramount – it’s the lives and livelihoods of employees and the public that’s at stake,” he tells Insurance News.

Reductions in maintenance activity often result in lower fuel efficiency anyway, he says.

“And any reduction in safety measures often results in drivers performing badly, resulting in poor techniques which also increase fuel use.”

Mr Rea says a deterioration in driver behaviour as a result of operators investing less on driver safety programs “naturally leads to more incidents and crashes, increased insurance claims, and an inevitable rise in premiums”.

As for lower maintenance levels adopted to keep fleet vehicles on the road for longer periods, he says operators need to understand that it’s not just the big mechanical items that need to be considered.

“Take tyre pressure as an example. A study by the US National Highway Traffic Safety Administration found that every 1% decrease in tyre pressure correlates to a 0.3% reduction in fuel economy. Under-inflation of a tyre by 10% increases fuel consumption by 3%.”

Fleet operators should also take note of the economies that can be achieved through

some everyday technologies. Reviewing the routes taken by vehicles, or using GPS/ SatNav to take the shortest routes, can reduce unnecessary fuel use, he says. Some systems now have the most efficient route as an option.

“Vehicles with stop-start technology triggered by brakes when standing stationary really do reduce wasted fuel when idle, particularly when driving a lot in built-up areas with lots of traffic lights and junctions.

“Most people think the amount of fuel saved using a start-stop system is negligible, but in reality that fuel burned while idling at a stop adds up pretty quickly.”

He points to a study by the Society of Automotive Engineers which found that using stop-start can see fuel economy improve by over 8% in heavy traffic.

“Reducing unnecessary loads will also increase fuel economy, so operators should encourage employees to remove roof racks when they’re not being used and any unnecessary heavy items.”

But drivers must also play their part in reducing fuel wastage, Mr Rea says.

It’s all about “modifying their behaviour and reducing harsh braking, acceleration and cornering, as well as sticking to speed limits”.

“The relationship between driver behaviour and fuel efficiency has been well-known for some time.”

The economic and safety benefits of gentler driving habits are considerable, according to fleet management technology company Emtec. Its research showed driver behaviour can affect a vehicle’s fuel efficiency by as much as 30%, no matter the vehicle size.

“Aggressive” driving – acceleration, speeding and hard braking – can lower fuel economy by 33% on highways and 5% in urban areas.”

A case study on driver safety behaviour by researchers at Monash University for the Australian Transport Safety Bureau came to much the same conclusion. It found driver training is key to lower levels of fuel consumption.

And the researchers also turned up a significant finding: the fuel consumption rates of crash-involved vehicles was higher than that of vehicles not involved in crashes.

“Comparisons before and after training in driving to reduce fuel consumption and analytical studies based on fleet data are recommended as measures of the safety effects of fuel-efficient driving.”

Of course, every litre of fuel saved through better driving also reduces a vehicle’s carbon

emissions – a factor that is becoming increasingly important.

“Whatever percentage of fuel wastage is achieved, the same reduction in carbon emissions can be achieved too,” Mr Rea says. “Smart decisions around fleet optimisation, utilisation and driver safety also helps achieve greater sustainability.”

Electric vehicles (EV) of all sizes will be arriving on Australia’s roads over the next decade, so what effect will they have on fleets and their fuel consumption issues?

“In time the benefits of electric vehicles and other fuel sources such as hydrogen will be reducing carbon footprints while increasing efficiency,” Mr Rea says. “But you should remember that the production and distribution of replacement parts and vehicle body repairs add to emissions, too.

“Logically, reducing crashes means less time spent conducting repairs and replacing vehicle parts and components, all of which add to an overall reduced carbon footprint.”

Mr Rea warns that choosing suitable EVs won’t be dictated by price, with efficiency, reliability and economy top of fleet operators’ minds.

Zurich is already positioning itself to assist customers when it comes to fleet replacements.

“It can’t be on price alone,” he says. “Making sure the EV is fit for purpose is a challenge, and we will soon be able to work with fleets to negotiate this minefield.”

With so much change coming over the hill for Australia’s road transport networks, Mr Rea sees Zurich Resilience Solutions gearing up with additional staff and data to provide valuable advice and insight to its fleet operator customers. And at the heart of it all is the driver.

“We care passionately about the driver,” he says. “Taking care of the driver often takes care of the vehicle, the goods carried and the customer.

“We don’t always just focus on the insurability of a fleet. We also help fleet operators, whether they are insured by Zurich or not, to be more efficient, competitive and resilient.”

He says Zurich “will soon be adding to this, with new recruits to our team, services addressing fuel efficiency, fleet utilisation and optimisation, performance management and sustainability consultancy services.

“We’re always focused on helping companies better understand the many sources of data they have available, and what that data is telling them about their fleet operations.”

Looking more ahead and less behind Munich Re’s Scott Hawkins explains why the solutions to understanding and dealing with future climate risks won’t be found in the past

By John Deex

A

decade ago the local insurance industry’s approach to climate change could be summarised quite simply.

Insurers relied on solid evidence, not predictions of what might be, and as products are reviewed annually the industry could adapt as necessary.

Not any more. Recent years have seen the industry take a much more proactive stance – and none more so than Munich Re. The giant German-based reinsurer carries out its own research into possible risks and acts on it, with its Australasian Managing Director Scott Hawkins saying the old ways don’t work when there is a stepchange in the scale of the threat. “[The approach] is changing for a couple of reasons,” he tells insuranceNEWS. com.au. “With climate, it’s easy to say it’s incremental, so therefore I can adjust every year. But then what you can end up with is a step-change.”

He gives the example of Hurricane Katrina in 2005, which caused destructive floods that covered more than 80% of the city of New Orleans.

“The levee was breached and the water could not escape. Given this was unexpected it changed views instantly rather than gradually over time.

“I think there are a couple of reasons why everyone’s looking more to the future.

There’s plenty of evidence to say things are going to change, and not in the positive. Also, we now have the technology where we can be more predictive.

“In the past we relied on more standard actuarial techniques looking at what has

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happened previously to predict the future.

Now we have the capabilities to predict the future based on the current data and evolve going forward.”

Munich Re uses its research to inform its products and pricing, but also aims to be an opinion leader “to help shape what others should be doing to improve the landscape”.

It has the expertise to be able to advise governments on where they should be building, for example.

Mr Hawkins is circumspect about the upcoming cyclone reinsurance pool devised by the Federal Government, and suggestions that it should be expanded to cover all flood risks.

He says reinsurance pools make sense when there is no capacity available, such as with terrorism after 9/11. But there is capacity for floods and cyclones.

Pools are one way to improve affordability, but they don’t address the underlying risk, and caution is required.

“It’s not a capacity problem,” he says.

“It’s more of a discussion around whether the price is affordable for people to buy those products. That’s one reason to put things into a pool.

“But what I would say is, you need to be mindful that you make the right decision for the long term.

“We just need to be mindful that it creates a long-term sustainable product, that we don’t have the wrong risk signals, [and] that people don’t stop trying to improve their risk, or else you’re delaying the inevitable.

“In the end any arrangement, whether it’s self-insured, given to the private

insurance market, or pooled and put on a government balance sheet – the losses are the same.

“It’s just who pays for those losses in the end.

“What we absolutely as an industry, and also as Munich Re, are encouraging governments to focus on is mitigation and resilience. It’s not just about making something slightly more affordable.”

Mr Hawkins sits on the Insurance Council of Australia (ICA) board and shares ICA’s belief that increased spending on resilience is vital.

That includes better land-use planning, so that “we make the right decisions on where we build going forward”.

It’s a message that, in the wake of the devastating east coast floods, appears to be getting through.

Mr Hawkins notes that when the cyclone pool plan was announced, so too was significant mitigation funding.

“The Government is publicly more committed than it has been in the past.

“We will watch with interest, and we also want to help inform the Government on where is the best place to put those funds for maximum impact.

“But I think, in the end, we need to come back to the premise of a long-term sustainable product.”

But what about those communities where no amount of resilience spending will reduce the risk to an acceptable level?

Mr Hawkins says tough discussions about relocation may be necessary.

“It’s a really hard one, to move someone

Future focus: Munich Re’s Scott Hawkins

from where they maybe have lived their entire lives to somewhere else.

“It’s always good to use an example of where that’s happened somewhere in the past, and that was a decision that had to be made in New Zealand.

“After the Christchurch earthquake, there are parts of Christchurch where you had liquefaction and [the land] can’t be repaired, so it was termed the ‘red zone’.

“The New Zealand Government determined that it shouldn’t rebuild in that area.

So there was a compulsory acquisition of properties. Then new suburbs were designed and built elsewhere.

“Now, that’s a really hard one. That’s not one for a reinsurer or the insurance industry to decide on its own. But if your property’s going to be that exposed, and if you can’t make it resilient or mitigate it, it may be a discussion that has to be had going forward.

“Particularly if things evolve and get even worse from a climate change perspective, then there could be some areas in Australia that become unliveable.”

If climate change is causing a “stepchange” in natural catastrophe risk, and carbon emissions are causing climate change, then shouldn’t more be done on this issue?

Mr Hawkins points to the latest report of the United Nations Intergovernmental Panel on Climate Change, saying that it shows that “the longer we take, the less likely it is that we’re going to be able to limit global warming”.

“That window of time to act is also starting to close, and some of the effects will not be able to be reversed.”

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Enabling transition: Mr Hawkins wants to help protect green technology

But he does believe Australia has ramped up its response in recent years and there’s now “real action”, illustrated by the number of companies that have “signed up to net-zero 2050 type agreements and targets”.

It’s a tough one to do quickly, he says, and no industry can do it by itself, but the insurance industry “is steadfast in helping to make it happen”.

“We certainly have already done our own work in terms of coming out of a lot of fossil fuels, on the asset side of the balance sheet, and also continuing to go down that path on the underwriting side.

“But I think the biggest role to play would be in helping companies transition to the new technologies. So it’s one thing to say we will stop fossil fuels and start green technologies. We all agree that’s what we have to do.

“But those things also need to be insured.

There’s no point having solar farms if you

can’t insure them. That’s our focus – how do we provide products and services to help that transition, whether it be wind, solar, or hydrogen?”

As to whether the transition should be moving faster, Mr Hawkins says people will “see more coming from the industry shortly”.

“If I think about the overall debate in the past five years, it’s gone very much from trying to push the Government, to shareholders pushing all companies to create that change.

“It’s shareholders, it’s lobbying groups, so I’m sure that there will be faster change.

It’ll be driven from multiple angles – regulators, shareholders, governments, and the companies themselves wanting to do the right thing.”

Mr Hawkins acknowledges the move away from the fossil fuel industry is “a really difficult debate”, due to the country’s historical reliance on it.

He also refers to last year’s Senate inquiry into regulation of investment in export industries, which has been critical of insurers and banks for “abandoning” the fossil fuel sector.

“But it’s not an essential service in the sense that you have to provide it,” he tells Insurance News. “So my response would be, it’s not about supporting or not supporting that industry, it’s about doing the right thing for the whole country.

“If we want a sustainable country to live in going forward, we can’t stay being reliant on [fossil fuels], because we know what the impacts are.

“I think Australia’s actually in a good place because we have an alternative. We have lots of open space. We have a lot of sun, and we have lots of wind.

“So as a producer of green technology and green energy, we’re very well placed – we just need to transition the technology.” 0

Serving future customers It’s not just natural perils where a future-focused approach is required.

Mr Hawkins’ 230-strong local team provides most classes of non-life reinsurance business, and the needs of policyholders are changing.

“As an industry we’re very good at servicing the ones that we always did in the past. But what are the new exposures? How do we bring in new ideas and new thoughts into our team to help provide that innovation going forward?”

Munich Re’s strategy includes growing its core business, but also exploring new areas.

For example, it wants to grow its cyber presence and help a broader array of clients.

“What we’re also trying to do is leverage our skills to see what types of risks other

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businesses have that maybe they would like to transfer.

“Then we would look at pushing more into things like banking and other types of financial services who are exposed to similar risks that our insurers are, but maybe which they currently aren’t insured against.”

Like so many in the industry Mr Hawkins says he “fell into insurance”, but – also like so many – he’s glad he did.

A graduate position at GIO was followed by a stint at the Australian Prudential Regulation Authority, before he rejoined the industry with QBE. He arrived at Munich Re in 2005 to run the casualty department locally, before rising up the ranks to take charge of non-life reinsurance, and

finally a year ago, become Managing Director.

He replaced Ralph Ronnenberg, who returned to Germany to become head of Reinsurance Controlling for the Munich Re Group.

The appointment of an Australian to lead the Australasian office was seen by some as unusual – Mr Ronnenberg and his predecessor, Heinrich Eder, were Germans with long backgrounds in Munich Re – but Mr Hawkins says he’s not the first local to take up the role.

“When I joined, Rhys Withers, a New Zealander, was the managing director here. And there was a gentleman called Alan Drake way back in the archives.

“I can’t tell you if he was Australian or a New Zealander, but he certainly wasn’t German!”

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Looming impact: floods across the east coast, including Brisbane, are likely to affect reinsurance rates. Credit: Ali Rasoul

The tide is slowly turning The major listed insurers brace for a flood of fresh challenges after a generally positive earnings reporting season

By Bernice Han

A

s the devastating floodwaters that wrecked towns in New South Wales and Queensland recede, the “Big Three” listed general insurers face difficult times ahead.

For IAG, Suncorp and QBE, the floods wash-up over the next few months looms as one of their biggest challenges as they seek to insulate the claims fallout.

Rating agency AM Best and analysts believe the floods will very likely translate into higher reinsurance costs for the insurers in the coming months, possibly as early as this coming June renewal season.

AM Best says reinsurers copped the financial hit from the last few disasters, such as the 2019 Townsville floods and 2019/20 Black Summer bushfires, and this latest catastrophe may well be the trigger for them to raise reinsurance rates.

At the end of March the Insurance Council of Australia (ICA) estimated the cost of the floods to insurers at about $2.367 billion from more than 169,000 claims. The numbers are expected to go up in the coming weeks as more claims are lodged.

In the latest earnings reporting season the three leading Australian insurers had fared mostly in line with expectations, having provided regular investor updates on how they were going in the lead-up to the financial results announcements.

Based on headline numbers alone, QBE and IAG look to have put their recent difficulties behind them, while Suncorp saw its December half net profit fall 21%.

After losing $US1.52 billion in 2020, QBE recovered last year with a $US750 million net profit. Chief Executive Andrew Horton, who stepped into the role

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37

last September, will no doubt welcome the momentum generated by the results as he looks to carry out his plans to establish the insurer as a “consistently high-performing” business after years of uneven results.

Not surprisingly, the insurers’ turnaround was driven partly by the strong pricing environment. For QBE, renewal premium rates grew an average 9.7% across the group as gross written premium (GWP) surged 22% to $US18.46 billion.

Mr Horton says QBE has “delivered a good result” and believes the insurer has a “great opportunity to grow and deliver consistency” – words dear to the ears of shareholders.

IAG has experienced much the same change of fortune. It bounced back from a statutory loss of $460 million in the previous December half-year to record $173 million for the six months to December 31, with overall GWP growing 6.2% to $6.57 billion.

Chief Executive Nick Hawkins is confident the business is now on the right track under the “reset” program he has implemented, despite a 57.7% drop in insurance profit to $282 million for the period.

The slump was due to such factors as the impact of significant natural perils costs of $681 million largely from severe weather events in October, along with modest reserve strengthening of prior year reserves of $37 million.

“We’ve reset the business with a simpler operating model, new leadership, and a clear strategy for growth which we are investing in to create long-term value for our stakeholders,” Mr Hawkins said.

Meanwhile, at Suncorp overall net profit for the half to December 31 fell 21% to $388 million. The diversified financial services group, which also has a banking arm, says profit after tax at its Insurance Australia division dropped 55.8% to $114 million.

Suncorp Chief Executive Steve Johnston has had to face a double insurance challenge brought on by

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higher natural disaster claims costs and lower investment market returns.

The group says it experienced 19 separate natural hazard events during the period, sparking more than 50,000 claims that impacted its Australian and New Zealand businesses. The number of declared events, defined as those costing more than $5 million, was up by seven compared to a year earlier.

As Australia counts the cost of the latest flood disaster to batter the east coast, the three leading insurers have sought to assure investors that any potential impacts to their businesses are likely to be limited because of the reinsurance measures they have adopted.

Suncorp says its early provisional forecasts suggest the net retained loss from the four separate weather events that led to the NSW and Queensland flood disasters remains unchanged at around $75 million.

It expects to receive about 40,000 claims from the floods. To date its customers have submitted more than 34,000 claims – around 60% in Queensland and around 40% in NSW. More than 80% of the claims relate to home damage.

IAG says it has extensive reinsurance protection in place and estimates it will incur a net claims cost of approximately $74 million from the storms and floods that commenced in February.

QBE, which has a smaller Australia footprint than IAG or Suncorp, says most of the 3000 claims it has received to date relates to its personal lines business.

While it is still too early to determine the financial impact of the event, QBE says it has a maximum event retention of $US125 million for non-peak events in its Australia Pacific Division.

Its 2022 financial year catastrophe allowance is $US962 million, including a first quarter allowance of $US248 million.

Fitch Ratings says IAG and Suncorp will bear most

of the flood loss claims because they account for more than half of the general insurance market. But the financial toll will be capped to a large extent by their reinsurance programs.

“The two insurers had already used a large portion of their retentions under aggregate reinsurance programs in response to events leading up to the recent floods, which should allow them to cede losses to reinsurers faster,” the rating agency says.

For now the reinsurance programs will cushion the flood impact, but analysts say the upcoming July renewal season will probably provide a better indication of the extent of the catastrophe’s impact on reinsurers’ appetite for business with Australian insurers.

“This event is likely to add to reinsurance pricing pressure and potentially reduce reinsurers’ appetite for Australian property risks,” AM Best said.

The insurers rank among the largest buyers of reinsurance programs, relying to a large extent on reinsurance to mitigate their natural catastrophes exposure.

“It’s really going to be about the pricing of these

reinsurance programs come July 1,” says Mark Tomlins, an insurance analyst with institutional brokerage Hunter Green. “I suspect it just means that reinsurance rates will go up.”

Morningstar Analyst Nathan Zaia tells Insurance News that “reinsurance is the one” he will be watching, because “it’ll be difficult for the industry to pass on premium increases to cover substantial increases in reinsurance”.

“And at the same time we're probably going to have some claims inflation,” he said. “We’ve already got shortages of materials and labour and we're going to have these big repair projects coming up.

“So it's kind of a lot for them to try to recoup from premium increases – and if reinsurance goes up, it might be a bit difficult.”

If the next year’s catastrophes are as widespread and severe as they have been over the past few months, insurers could find themselves caught up in a new kind of storm – affordability, rising claims and costs, plus escalating reinsurance premiums. 0

Going for broke Steadfast, AUB Group and PSC Insurance Group are oozing confidence as they look to capitalise on strong firsthalf results to finish this financial year on a high.

The three powerhouses of Australian insurance broking have all revised their 2021/22 profit guidance, citing a continuation of favourable pricing conditions that have carried their businesses through the past two years of covid-fuelled economic uncertainties.

Also fuelling their optimism is the returns they are getting from recent acquisitions and improved organic growth.

Steadfast, the largest of the three networks, raced to a 26.4% rise in underlying net profit to $76.3 million in the December half. The business has subsequently upped its full-year guidance, to $163-170 million from its original range of $159-166 million.

AUB Group’s new forecast has underlying net profit of $72-74 million, up from $70-73 million previously. Its firsthalf underlying net profit went up 16.7% to $30.6 million.

Melbourne-based PSC’s revised full-year guidance has underlying earnings before interest, tax, depreciation and amortisation (EBITDA) at $87-92 million, up from $84-89 million previously. The business recorded a 42% rise in firsthalf underlying EBITDA to $40.7 million from a year earlier.

“They’re very well placed,” Macquarie Group Insurance

40 insuranceNEWS

April/May 2022

Analyst Andrew Buncombe tells Insurance News. “The premium rate cycle is very, very strong… so it’s an excellent point in the cycle for an insurance broker.”

Steadfast is expecting premium rate rises of 5-7%, AUB 7-9% and PSC says it is pleased with the execution of its multi-region business model in the key markets of Australia, the UK, New Zealand and Hong Kong.

Mr Buncombe says Steadfast “continues to do extremely well in getting more business on to their platforms”.

“That is having considerable benefits for network members, whether they’re equity-owned or not.”

He says PSC’s UK business is a “standout”, and the same goes for AUB’s Austbrokers.

AUB Australian Broking improved its underlying pre-tax profit by 9.5% to $38.3 million in the December half, and Chief Financial Officer Mark Shanahan says Austbrokers’ general insurance commissions are 12.4% higher than a year earlier, with approximately 8.1% resulting from premium rate increases.

At PSC, Managing Director Tony Robinson says “it’s been a very good six months” and believes the UK business has “got lots of room to continue to grow”. Based on the first-half figures, the UK business accounts for 52% of underlying revenue.

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Care cover crisis NSW and other states are scrambling to find solutions after the last insurer dropped ‘uninsurable’ abuse cover

By Miranda Maxwell

S

tate governments are racing to devise a longterm solution to an insurance sector collapse that has exposed care providers to significant financial and reputational risk, threatening their ability to offer essential services to vulnerable Australians.

The issue has arisen after Ansvar withdrew from offering providers of foster and residential housing programs – services known as out-of-home care – cover for claims of physical and sexual abuse (PSA).

PSA insurance enables providers to deliver essential services to vulnerable children, people with disabilities, the disadvantaged, the aged and other groups.

Ansvar’s withdrawal from out-of-home PSA cover follows the departure of almost all other insurers from the space after the Royal Commission into Child Sexual Abuse reported in 2017.

The niche has been deemed uninsurable by underwriters after a surge in historical claims, egged on by advertising from no-win no-pay lawyers, and has left care providers pleading for state governments to step in and devise a backstop.

A short-term emergency tide-over indemnity scheme has been introduced in New South Wales as a quick fix, and other states – apart from Victoria, which has a had a “generous” scheme in operation for the past two decades – are expected to follow suit after extensive lobbying by concerned organisations such as such as Anglican Insurance & Risk Services (AIRS).

An intergovernmental working group has been established to identify a long-term solution, which NSW hopes will be in place by December when its Short-Term Indemnity Scheme stopgap measure expires. That scheme only covers claims related to abuse after mid 2017, limited to $5 million.

Child Protection figures reveal around 1% of children aged under 18, or just over 45,800 children, are in outof-home care. Around half are in “kinship care” with

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43

“We cannot afford to continue paying these claims and we can’t, even with the sector’s involvement, work out a way to mitigate the risk.”

a relative or friend, 39% in foster programs and 6% in residential care, which is a home staffed by carers.

While well intentioned, underwriters say the model is proving a recipe for claims.

“Abuse risk in the sector rests in people’s homes, which is largely out of the control of agency providers,” says AIRS Chief Executive Neil Bull, who tells Insurance News out-of-home care claims are “hugely disproportionate per participant” to the rest of the community sector.

Under post-royal commission legislative reforms, sexual abuse claims no longer have time limitations to the bringing of litigation, and reopening of past settlements may be allowed across most states.

On top of that, the NSW Government changed its position on enjoining agencies to legal actions, with a recent court case finding an agency 20% liable.

“Historically the NSW Government picked up the whole tab, so insurers have not really collected premium for this,” Mr Bull says.

An AIRS discussion paper, Abuse Insurance Crisis in the Out-of-Home Care Sector, estimates the potential claims exposure from writing new PSA cover in outof-home care is around $1.3 billion, based on previous claim payouts of $250,000.

The claims exposure estimate is based on Child Protection evidence that one in every five girls and just under 5% of boys have been sexually abused, signalling a potential claimant pool of 5198 (4122 female and 1076 male).

Adding legal costs, the exposure surpasses $2 billion, while insurance experts estimate the premium pool for the sector tops out at just $20 million.

“Without insurance cover, agency providers are exposed to large financial losses,” the report says. “Most do not have the financial reserves to survive a claim.

“Agency boards now face the possibility that directors and officers are personally exposed if they are shown to be negligent in their governance role, particularly for the provision of securing adequate insurance for their respective organisations.”

It’s understandable why insurers are shying away from this type of exposure, AIRS says.

The general insurance market started to “change its attitude” toward out-of-home care in late 2020 after a

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dramatic increase in court-awarded payouts, a willingness to apportion liability vicariously and significantly increased insurance claim frequency.

Ansvar’s gross claims liability for PSA cover increased 350% in the past few years to account for 66% of casualty claims provisions – up from 27% in 2017.

Out-of-home care makes up over 30% of all of Ansvar’s claims for PSA, which it still offers to religious institutions, schools, aged care and other sectors.

“The trends are very concerning,” Ansvar Chief Executive Warren Hutcheon tells Insurance News.

“There are specific nuances with out-of-home care.

We’ve had to withdraw because the risk is uninsurable from our point of view.”

He says the alternative was to charge an unaffordable premium or impose terms that were unviable.

“We cannot afford to continue paying these claims and we can’t, even with the sector’s involvement, work out a way to mitigate the risk. There has been a withdrawal and a failure of that part of PSA.” Ansvar’s net combined ratio surged above 130% as the high volume of new abuse claims struck. Its UKbased parent, Ecclesiastical, stepped in with capital injections and is also providing significant intra-group reinsurance protection, including renewal of a PSA excess-of-loss cover and the placement of a new stop loss program.

“We are certainly refocusing and re-looking at our wording, and we will be moving more likely to a claimsmade wording, which is more traditionally provided in the market,” Mr Hutcheon says.

Ansvar has until recently offered PSA cover on an occurrence-based basis, meaning it will respond irrespective of when a claim is lodged. CGU, Vero and QBE all declined to offer out-of-home care PSA cover some years ago – and had mostly limited cover to claimsmade policies when they did.

The royal commission estimated there were 19,000 residential and 6000 foster care PSA abuse survivors, making up around 42% of all institutional abuse cases.

Mr Hutcheon says the trend of the past decade is for more young people to enter out-of-home care. Many are from very difficult circumstances where alcohol, drug or sexual abuse and enduring homelessness has been experienced.

“It is more an indictment on society than it is anything else. It is a real mess but it is not an insurance industry problem. They just got swamped with claims.”

“That is very sad in a society like Australia where you have this growing demand for children going into out-of-home care,” he tells Insurance News. “It says a lot about our society, but these are the facts.

“You are combining all of those unfortunately damaged individuals into a group home which is still a very, very challenging environment. Unless you can supervise that 24/7, the risks are very high.”

The latest meeting of the Insurance Council of Australia’s (ICA) new Business Advisory Council described PSA as a “very difficult and complex area” and identified three main drivers for the “severe tightening” of the market: a “significant increase in the quantum” of common law claims, tougher risk mitigation requirements of reinsurers and insurers, and changes to liability settings.

The council noted the removal of limitation periods put insurers on risk indefinitely for occurrence-based policies.

Marsh Managing Director Head of Placement Asia Pacific John Donnelly says securing this cover was never easy in a “very, very narrow market”, and the royal commission fallout made it “worse, but it was already terrible”.

Elements of cover were available from some insurers like Catholic Church Insurance and a few Lloyd’s syndicates, but out-of-home-care was always the trickiest sector for PSA cover.

“That market has all but disappeared, and it does not look like it is going to come back anytime soon,” Mr Donnelly says.

He says insurers have no way to accurately assess and quantify the risk and charge adequately for it, with the only possible answer being a government guarantee.

Those in the field say even with the best checks and balances, abuse in out-of-home care is especially difficult to eliminate, one recounting an incident in which a ward of the state was abused by friends of the children of “exemplary foster parents”.

“The number of links in the chain that can potentially abuse children is uncontrollable, so that risk is unassessable. [Insurers] can’t work out what premium they ought to be charging and they have determined it to be

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basically impossible,” Mr Donnelly said.

“You cannot get enough premium pool, you cannot assess and quantify the extent of the risk, and it is going to run over such a long period of time.

“It is more an indictment on society than it is anything else. It is a real mess but it is not an insurance industry problem. They just got swamped with claims.”

Ansvar sent out an alert to brokers last year advising that out-of-home care PSA risks would no longer be renewed as “both the risk landscape of physical and sexual abuse in organisations as well as PSA insurance cover in Australia have fundamentally changed”.

It detailed substantial increases in both the “frequency and the quantum” of claims from sexual abuse victims in the previous two years, driven by a preference for civil litigation over redress schemes to resolve historical incidents and “restitution and justice to abuse survivors in a manner that is at least comparable to that of other injured persons”.

Employers are now more likely to be found vicariously liable for the criminal acts of their employees, with organisations expected to satisfy higher thresholds of reasonable care.

Ansvar has been underwriting PSA cover for more than 20 years and the vast majority of its PSA claims stem from events 20-30 years ago.

Mr Hutcheon says the issue is a legacy one, with premiums priced decades ago in a different regulatory environment when no-one imagined legal limitation periods could be scrapped and additions such as economic loss compensation added.

As an example, a 2020 case in Western Australia brought by an individual against an orphanage was decided with $600,000 in economic loss as part of the $1.4 million settlement.

“You now have economic loss – John could have been a lawyer but for what occurred, and now he’s ended up as a drug user. Such settlements weren’t really considered 20 years ago.”

“How do you price for paying a claim in 20 years’ time when you have no certainty around what the environment that you will be paying the claim in looks 0 like?”

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Backing Australia’s small business ambition Insurance News talks to a diverse range of insurance brokers about how they’re supporting our nation’s small business community to dream big.

Brokers agree it is time we challenge Australia’s negative attitudes toward ambition, as highlighted

by CGU Insurance in their recent film,Tall Poppy.

The film shines a light on our nation’s problem with discouraging people from chasing big dreams, with research conducted by the company finding more than a third of Australians believe ambition is often regarded as a dirty word.

More than half of those surveyed believe we like to cut down ambitious people, even as 77% acknowledge ambition is important to drive progress and innovative thinking.

Insurance brokers are at the coalface of helping protect the ambition of their clients, with firsthand knowledge of what it takes, as many are small businesses themselves and understand the unique struggles of trying to succeed in Australia.

“I started in the industry 20 odd years ago, a small family business my father Ian and mum Michele ran from their dining room table. Today we have five locations across South Australia and a great team,” he tells Insurance News.

The broker has learnt from his father’s 50-plus years in the insurance industry. He says he does not want to see an old-fashioned “tall poppy” way of thinking hold the nation or the insurance industry back.

“Australia is a country of opportunity. Some people will always knock others down, but I treat this as white noise in the main. Give things a go, I say,” he says.

Mr Salvemini is grateful to have been encouraged by his insurance industry colleagues when he started his business. So now he pays that forward, helping all his clients to succeed and to navigate uncertain times, such as the unique challenges of the past two years.

“It starts with a plan and takes a lot of risk and hard work,” says Adelaide broker Jason Salvemini.

“It all starts with a dream. The farmer that is feeding the nation, the industrial cleaner who keeps our workplace safe, the ice cream and wine makers who give us joy.

For Mr Salvemini, helping small businesses embrace and protect their ambition while minimising their risk is a family affair.

“If you have a dream you should pursue it regardless, surround yourself with people that will allow it to flourish.”

His parents founded Insurance Services SA – an AR of CGU,Allianz & QBE – in 1999 and General Insurance Agencies and Insurance Services merged to form GIA Insurance Brokers in 2017.

Small business owner Leanne Stevens, CEO and founder of Emergico Migration Agents, doesn’t allow herself to be put off by negative tall poppy thinking. Leanne helps people manage the challenging Australian visa application process via her offices in Brisbane, Melbourne and the UK.

The business has expanded throughout regional South Australia to the Riverland region with offices in Berri,Waikerie, Loxton and in the south east to Mount Gambier.

The former Telstra Businesswoman of the Year finalist says,“There are always going to be people

that want to bring you down because they are jealous – you have made it and they haven’t.

“I just ignore those sorts of people and don’t get put off when somebody says to me ‘you should not do that’.”

The successful leader says the support of her broker, Mandy Cooper of CPR Insurance, has been an integral part of her success, and urges fellow SMEs to seek out the support of a broker.

“We could not do our business without our insurance broker. We absolutely couldn’t. We have office management insurance requirements; we have indemnity and liability – there is no way that we could do this without the help of our insurance broker. I would not have the time to go through it all myself,” she tells Insurance News.

The cultural phenomenon of tall poppy syndrome has historically been so entrenched and widespread in Australia and New Zealand it warrants its own place in the dictionary and its own page on Wikipedia.

CPR Insurance Director Mandy Cooper says when she established her Brisbane-based brokerage with husband Robert more than a decade ago, she rejected the parochial “tall poppy” attitude.

She recalls humble beginnings and a “need to win this deal to pay for the groceries this week” on the road to becoming the highly regarded, awardwinning brokerage CPR is today – a shining example of industry ambition and success.

“We started with nothing when we started CPR. We did not have one client on the books, we started from scratch,” she said.

“ It is about sharing success together and building

relationships to support each other, and knowing that is how we are all feeling – not attacking each other but working with empathy and support.That will stop knocking people down and see the really good ones flourish. ”

The passionate business owner says insurance brokers are key to inspiring and nurturing the ambition of their SME clients, and shares that she encouraged her clients to buy flood cover when they questioned the value of it – advice they were deeply grateful for when the flood catastrophe struck in March.

innovations and big ideas is how small businesses grow,” he says.

Ms Cooper is particularly passionate that women should not be held back from their ambitions.

“We also know the essential role our brokers play in nurturing, protecting and celebrating that ambition.”

The firm advocate of work/life balance is worried that women fall victim to internalising tall poppy syndrome and sacrifice their own dreams for competing priorities.

Ms Cooper believes that ambition can coexist with all of life’s other demands, but her concerns are backed up by CGU Insurance’s finding that women are more likely than men to say they are not ambitious at all.

Protecting the ambition of the nation’s small businesses is arguably as important as protecting the assets covered by an insurance policy.

Brokers agree it is time to grow, inspire and champion creative minds and make it permissible to celebrate ambition in ourselves and others.

CGU Insurance has launched a campaign which encourages Australians to challenge tall poppy syndrome, leading with a short film created in collaboration with The Jim Henson Company.

CGU Insurance Executive General Manager Damien Gallagher says the Tall Poppy story links directly to CGU’s promise to back the ambitions of its brokers and customers.

“We believe it’s important to tackle tall poppy syndrome because being ambitious and pursuing

“Insurance is about more than protecting physical assets and protecting a business, it enables people to dream and set big goals knowing that they have that safety net of insurance.

The seeds of change are evident throughout the broader industry. CPR’s Mandy Cooper says the environment is shifting.

“We all feel the competitiveness, but we need to work more collaboratively, and support each other’s successes. I have been trying to do that,” she said.

“It is about sharing success together and building relationships to support each other and knowing that is how we are all feeling – not attacking each other but working with empathy and support.

That will stop knocking people down and see the really good ones flourish.”

CGU Insurance is a leading commercial, rural, and personal lines insurer and top-three provider or workers compensation insurance. For over 165 years, CGU has partnered with ambitious brokers to deliver exceptional insurance products and insured peace of mind to their customers.

Insurance issued by Insurance Australia Limited trading as CGU Insurance. Always read the PDS and Target Market Determinations available at cgu.com.au. The CGU Insurance YouGov study was conducted online between 9-13 December 2021.

The sample comprised of a nationally representative sample of 1,055 Australians aged 18 years and older.

To see if a product is right for you, always consider the Product disclosure Statement and Target Market Determinations available from CGU.com.au. Insurance issued by Insurance Australia Limited trading as CGU Insurance.

Watch what ambition can do

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Sharpening up: Aviso targets AR, broking markets Aviso Group has moved to strengthen its market presence, setting up a dedicated authorised representative (AR) business and creating Aviso Broking from the merger of five partner firms.

The business says Aviso Select will consist of more than 30 ARs collecting in excess of $100 million in premium across all states and territories, and will be led by Chief Executive Andrew Hinz and General Manager of Distribution Matt Bradley.

Aviso Select aims to lead the AR market by offering bespoke agreements to an exclusive, select group of professionals who share the common goal of providing “exceptional” customer service and specialist advice, the group says.

The AR business will launch alongside Aviso Broking, facilitating existing ARs and enabling strategic and targeted growth.

Aviso Broking is the result of the merger of partner firms Allsafe, Aviso EIA, Aviso All Points, Wymark and Sutton Insurance Brokers, and will collectively place more than $180 million in gross written premium for more than 30,000 clients.

Jeff Moule will lead Aviso Broking, supported by Chief Operating Officer Shane Risby, Chief Financial Officer Rod Corkill and Head of Growth and Specialty Luke Eagle.

The combined business brings together more than 100 staff, with offices in Queensland and NSW major cities as well as in Melbourne and Darwin.

“Creating Aviso Select was the next logical step for Aviso Group,” Aviso Group Chief Executive Craig Robson said.

“Aviso Select will work closely with Aviso Broking utilising a shared services team and leveraging the strength 0 of Aviso Group.”

Innovative approach: Lockton launches advisory business Former Willis Re local Chief Executive John Philipsz will head a new advisory business launched by independent brokerage Lockton Australia.

Lockton Advisory will deliver risk, capital and placement services to the (re)insurance industry and corporate clients requiring bespoke insurance products across Australia, New Zealand and Pacific.

Lockton Pacific Chief Executive Paul Marsden says the initial focus will be on reinsurance (treaty and facultative), MGA solutions including placement, capital management, strategic advisory and innovative risk transfer products.

“Lockton Advisory brings an innovative and aligned approach to the increasingly complex needs of those operating within the (re)insurance sector, as well as those reliant on its services," he said.

CEO Mr Philipsz is joined by Partners Russell Hails and Max Garratt, who are both former executives of Willis Re. Willis Re was recently acquired by Gallagher Re. Mr Marsden paid tribute to the trio’s track record, reputation and network of global relationships which “will significantly enhance our specialist capabilities”.

Mr Philipsz says the (re)insurance market and those dependent on its services are navigating “increasingly diverse objectives” spanning financial outcomes as well as environmental, social and governance responsibilities.

“Lockton Advisory is uniting a team that will provide clients with expert advice, contemporary solutions and execution excellence in meeting these goals,” he 0 said.

Acquisitions alert: PSC raises capital to fund further growth PSC Insurance Group has bolstered its acquisitions firepower with an $80 million capital raising as it eyes potential purchases in Australia and the UK. “The group has a good pipeline of acquisition opportunities,” it said. “In particular, we are considering acquisitions of UK and Australian commercial broking businesses, with a number under due diligence.”

PSC says it has received binding commitments for the placement of 17.78 million shares to selected institutional and sophisticated investors at an offer price of $4.50 per share, with the raising enabling the company

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to pursue growth plans, while not increasing debt in uncertain times.

The company has completed 12 acquisitions since January last year for a total base purchase price of around $119 million, with the deals contributing an additional $16 million in earnings before interest, tax, depreciation and amortisation on an annualised basis.

The transactions include the purchase of Trust Insurance Services and Abaco Insurance Brokers in the UK and Alliance Insurance Broking Services in 0 Australia.

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UAC Sydney expo draws more than 300 brokers The Underwriting Agencies Council (UAC) expo at Sydney’s Hyatt Regency hotel in February attracted more than 300 brokers, including a lucky few who won gift cards in a door prize draw.

UAC says the one-day expo was a great success as the event was an opportunity for exhibitors to share with brokers the latest insurance offerings available in the market.

Accuracy Insurance Services Senior Sales Manager Stephanie Fu was one of three who won the Sedgwicksponsored door prizes, going home with a $150 gift card.

David Smuk, business relationship manager schemes & affinity at SPT Insurance, won a $100 gift card and Katie Robinson from Aon won a $200 0 gift card.

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Austbrokers/Sura take out Insurance Ashes It was a glorious day of sunshine on March 15 when cricketers from across the insurance industry took to the field at North Sydney Oval for the Primary Club of Australia’s 2022 Battle of the Insurance Ashes, the fourth in the series.

Around 70 players gathered across five teams to see Austbrokers/Sura take the win, just pipping runners-up QBE and Allianz in the round-robin tournament which also included teams from CGU and Vocus.

Batter of the day went to Allianz’s James Dunk and top bowler to QBE’s Tim Wight, while Sura’s Andrew Faber took keeper of the day.

Former NSW captain Phil Emery, now

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Director at Gow-Gates Insurance Brokers, was in attendance at the event, which included a lunch followed by cocktails and canapes in the dining room during a late afternoon awards presentation.

The 2022 Insurance Ashes raised $35,000 for swim training aids for charity Rainbow Club and racing bikes for the Cerebral Palsy Alliance.

Primary Club has been providing sporting and recreational facilities to people with a disability for more than 40 years across Australia.

“It’s all about the charities we serve and giving people a chance to feel the exhilaration of playing,” charity development manager Geoff Verco told Insurance News. 0

CHAR TERED LOSS ADJUSTERS claims@astagroup.com.au

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Steadfast Convention returns in style The Steadfast Convention held in Adelaide in March has been hailed a huge success, with more than 1600 people attending.

The event kicked off with a glamourous welcome party at the Adelaide Oval, and speeches and panels took place alongside the popular exhibition hall before the Great Gatsby themed gala dinner wrapped things up.

The Steadfast Convention returned after a two-year break due to covid, and the 2023 event will take place at the Perth Convention & Exhibition 0 Centre from March 26-28.

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n the post Budget period, as we watched the Northern Rivers again suffer a deluge of damaging rain, the Morrison Government passed legislation to create a publicly-funded reinsurance pool for cyclone and cyclone-related flood risk.

The recent and ongoing flooding across the eastern seaboard has prompted questions about whether it could be expanded to cover a wider range of natural disasters.

While ideas on these critical issues are many, we must make sure that any interventions are targeted towards the key issue – the growing impact of natural disasters across Australia.

Driving sustainable relief to people’s premiums will require long-term coordinated attention across a range of measures from all levels of government and across both sides of politics.

A government-backed reinsurance pool is not a silver bullet; it is just one lever available to influence premium prices in cyclone-impacted regions of Australia.

The key driver of insurance premiums in many areas of Australia is growing risks from extreme weather events.

In 2021, Deloitte estimated the impact of extreme weather events to the Australian economy at $38 billion. Without investment in resilience and mitigation, these costs are estimated to hit $73 billion by 2060. The most recent report of the Intergovernmental Panel on Climate Change placed the problem in starker terms – an estimated a $92 billion impact to the Australian economy by 2050.

Including the current floods, since the Black Summer of 2019-20 there have been more than 720,000 disaster-related claims reported from 11 declared insurance catastrophes totalling more than $11 billion in insured losses.

These shocking statistics illustrate why a broader response is needed. Rising claims costs put upward pressure on reinsurance rates and, ultimately, the premium paid by the end consumer. This will happen whether the reinsurance pool is run by the private sector or by the government on a cost-neutral basis.

Questions around affordability require a clear-eyed discussion about whether we are prepared to transfer the true cost of risk

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By Andrew Hall Chief Executive, Insurance Council of Australia

from consumers and businesses in areas of higher risk to those in areas of lower risk across the country. Any intervention raises the question who will pay and what outcome will it deliver.

In assessing the effectiveness of government-backed reinsurance, we can turn to global examples. Many countries, including France, the United Kingdom, and the United States, already have such arrangements. The experience is clear. Without complementary risk mitigation measures, governments will ultimately be faced with the choice of raising reinsurance rates (and therefore consumer premiums) or diverting tax dollars to subsidising the pool.

Let’s look at the United States National Flood Insurance Program (NFIP). From 2004 to 2018, it borrowed $US39.4 billion from the federal government to pay out claims.

In 2017, the US government cancelled $US16 billion of NFIP debt, to make it possible for the program to pay claims for hurricanes Harvey, Irma, and Maria.

Such an approach here would only exacerbate Australia’s existing problem of under-investment in resilience and mitigation measures. According to the Productivity Commission, 97% of all disaster funding in Australia is spent after a natural disaster with just 3% spent on measures prior to an event taking place.

We have also seen internationally that government-backed reinsurance can diminish the crucial risk signal that insurance provides to consumers. Over time, this encourages new developments in areas of high natural peril risk and rebuilding flood affected properties happens on a “like-forlike” basis. This is a poor outcome for all involved.

The Insurance Council’s policy platform Building a Resilient Australia outlines better options to protect homes and communities and put downward pressure on premiums.

These include a doubling of federal funding to $200 million a year in household retrofits and community protection projects, matched by the states and territories, better land use planning so no more homes are built in harm’s way, updating the national building code to include building resilience, and removing state taxes and

charges on insurance, which discourage adequate cover by driving up the cost of premiums.

These are practical measures that address the problem at its source. They are also cheaper to implement and have the added benefit of actually protecting people from the impact of the disaster, not providing false comfort or, worse, incentives to do nothing about the risk in the first place.

Moreover, they build on our country’s experience of what works. The Queensland Household Resilience Program resulted in an average insurance premium reduction of 7.5%, with some reductions up to 25%.

Likewise, the construction of a $15 million flood levee in Roma, Queensland in 2015 protected 483 homes and 75 businesses, reducing insurance premiums by an average of 34%.

Over the last few months, we are seeing the national dialogue shift, although there remains a disappointing level of actual investment. Both sides of politics proposed greater investment in resilience and mitigation. These include the establishment by the Coalition of the National Recovery and Resilience Agency, and Labor’s Prevent, Prepare, Rebuild plan which is more keenly focused on the mitigation challenge.

We have also welcomed the Government’s decision to more closely link the reinsurance pool proposal with resilience measures, following input from the Insurance Council and its members. For example, the pool will offer discounts for policies that have undertaken cyclone and flood mitigation.

But in the lead up the election now just weeks away it is incumbent upon the Morrison Government to not only assist with recovery but announce further investments to better protect communities from the impacts of extreme weather.

A reinsurance pool by itself is not the solution, and a reinsurance pool will not protect people from the terrible impacts of flood, cyclone or bushfire. If we want to get serious about this issue, and do it in a way that is financially responsible, we need to invest in measures to protect homes and communities, stop building houses in harm’s way, and regulate to make our built envi0 ronment stronger into the future.

NEVER STOP GROWING AUSTRALIA’S AMBITION We understand that for a business to thrive, we need to protect the ambition of its owners. Talk to your Broker Relationship Representative to find out more.

To see if a product is right for you, always consider the Product Disclosure Statement and Target Market Determinations available from cgu.com.au. Insurance issued by Insurance Australia Limited trading as CGU Insurance.

NEVER STOP GROWING We understand that for a business to thrive, we need to protect the ambition of its owners. Talk to your Broker Relationship Representative to find out more.

To see if a product is right for you, always consider the Product Disclosure Statement and Target Market Determinations available from cgu.com.au. Insurance issued by Insurance Australia Limited trading as CGU Insurance.